Section 1: Wave and Tidal Bands

We propose to leave Scotland's enhanced wave and tidal stream ROC bands unchanged for the time being.

We propose to amend the definitions of our enhanced wave and tidal stream bands to remove the exclusion upon projects eligible for these bands from receiving grant support.

Introduction

1.1 The Scottish Government is committed to supporting the development of wave and tidal energy capacity in Scottish waters, and positioning Scotland as a world leader in the development of these technologies. This is based on the tremendous resource which Scotland boasts - 25% of Europe's tidal resource, and 10% wave - and on the contribution that these technologies could make to meeting our renewable energy targets, as well as the potential benefits for the Scottish economy.

1.2 It is this desire to give the sector the support that it needs which has led the Scottish Government to introduce higher levels of support for wave and tidal stream generation under the ROS. This began with the introduction of a Marine Supply Obligation in 2007, which was superseded by the introduction of enhanced ROC bands for wave and tidal stream in April 2009.

Band Levels

1.3 Both the Marine Supply Obligation and the enhanced ROC bands have incorporated a degree of difference between the level of support for wave and the level of support for tidal stream generation. This was based on analysis conducted for the Scottish Government in 2006, prior to the introduction of the Marine Supply Obligation, which suggested that the development costs for tidal stream projects were likely to be lower than those of wave energy.

1.4 This same distinction was incorporated into the introduction of banding, with the enhanced wave band set at 5 ROCs and the enhanced tidal band at 3 ROCs. Since then, there have been some calls for this difference to be eliminated and the tidal band raised to 5 ROCs. The Marine Energy Group's Roadmap, published in June 2009 and available here, recommended that the Scottish Government should review the bands with a view to increasing the tidal band from its current level.

1.5 Following that recommendation, the Scottish Government joined with DECC to commission a study, conducted by Ernst and Young with input from Black and Veatch, of the current and future development costs of wave and tidal energy, and the levels of support (including under the RO) which would be necessary to deliver appropriate rates of return at various stages of development.

1.6 That study is now close to completion, and we expect it to be published during autumn 2010.

1.7 Its conclusions are broadly that, while the current costs of development facing both technologies are similarly high, there remains a notable difference in the levels of support likely to be required for wave and tidal stream projects to deliver a reasonable rate of return at the pre-commercial stage of development.

1.8 The report acknowledges that its conclusions are based on a number of assumptions, all of which are, to differing degrees, sensitive to variation. The number and importance of these assumptions and uncertainties are such that the report's conclusions need to be treated with a degree of caution. There remains too a lack of genuine operational evidence and data upon which to build more robust conclusions.

1.9 Our view is that the conclusions emerging from this study, and specifically those on the costs of and support levels required by wave and tidal stream projects at the pre-commercial stage, neither constitute nor provide evidence which would be sufficient to justify a change to the Scottish Government's enhanced ROC bands at this time. As such, we do not propose to make any further changes to the level of those bands as part of the changes to be introduced in April 2011.

1.10 However, we intend to continue keeping this issue under close scrutiny using the wider review of bands, due to begin in October 2010, and to consider any changes in the evidence base which argue for an amendment to the levels as they stand. This is likely to involve further study, and we will be speaking with key partners about how best to take this forward.

Enhanced Wave / Tidal Bands - Change to Definition

1.11 The existing definition of our enhanced wave and tidal stream bands is worded to preclude from eligibility any generating station which has received capital or revenue funding from the Scottish or UK Governments. This reflected a wider view at the time of the bands' introduction that the enhanced levels would be sufficient on their own to support development of capacity.

1.12 We have received a number of representations since then arguing that this is not the case, and that, while it may be the case that certain projects are able to proceed without additional support, that would be the exception rather than the rule. It has been put to us that the exclusion from receiving enhanced ROCs as well as grant support should not be universal, but that instead, stations applying for grant support should have the potential income from enhanced ROCs taken into account when considering the grant award.

1.13 We believe that this approach would make sense. Since any change would introduce a variation to the State Aid position as it applied to our introduction of enhanced ROCs, we approached the European Commission last year about our introducing the necessary change to our legislation. The Commission has now given its agreement to our proposal (N259/2010). As such, we intend to introduce the following amended definitions for the enhanced wave and tidal bands:

"enhanced tidal stream" means electricity generated from the capture of the energy created from the motion of naturally occurring tidal currents in water, where such electricity is not generated by devices built with or maintained by capital or revenue funding under a statutory grant programme operated by the Scottish Ministers or the Secretary of State in respect of which a statutory grant was awarded on or before 19th September 2008;

"enhanced wave" means electricity generated from the motion of naturally occurring waves on water, where such electricity is not generated by devices built with or operated under a statutory grant programme operated by the Scottish Ministers or the Secretary of State in respect of which a statutory grant was awarded on or before 19th September 2008;

1.14 The date contained in the above definitions was the point at which our enhanced wave and tidal bands were published for consultation.

Questions

What are your views on our proposal to leave the wave and tidal bands unchanged, i.e. left at their current level of 5 and 3 ROCs respectively? If you disagree with this proposal, please tell us why and provide us with any evidence which supports an alternative position.

What do you think of our proposal to amend the wave and tidal band definitions in the manner outlined above?